Kansas weighs overhaul of sports betting tax rules as state revenue falls short

Kansas legislators are reevaluating how the state collects revenue from sports betting, with many arguing that the current system leaves the state shortchanged. The Special Committee on Federal and State Affairs met this week to discuss Kansas’s 6.5 percent share of sports wagering revenue, one of the lowest rates in the country.

When lawmakers approved sports betting in 2022, the expectation was that the state would receive 10 percent of taxable revenue. Instead, a provision allowing sportsbooks to deduct promotional credits has reduced Kansas’s effective rate to 6.5 percent. This has meant fewer dollars for state programs despite strong betting activity.

In fiscal year 2025, sports betting generated $17.4 million for Kansas. Since legalization, the total stands at more than $36 million. Yet legislators point out that the figure could have been significantly higher had the state collected the full 10 percent originally envisioned. Much of the money currently goes to a fund intended to attract professional teams like the Royals and Chiefs.

Rep. Tom Kessler has voiced concern that Kansas is not maximizing its revenue. He said the state should explore “better paths” that would increase collections without damaging the industry.

Rep. Francis Awerkamp was more direct, calling the existing framework an “absolute failure.” He questioned whether Kansas should continue with multiple operators or consider moving to a single-operator system, as states like Oregon have done.

The comparison to other states has underscored the debate. New York taxes sportsbooks at 51 percent, Pennsylvania at 36 percent, while even Missouri, which only recently legalized sports betting, applies a 10 percent rate. Only Arizona and Michigan bring in less revenue proportionally than Kansas, which ranks 29th of 33 states in tax collected per $1 million wagered.

Much of the problem lies in the deductions sportsbooks take for free bets and promotions. These credits, often used to attract new customers, reduce the taxable base and have cut millions from state collections. Lawmakers argue that eliminating or limiting such deductions could boost Kansas’s share without raising the tax rate.

The timing of the debate is critical. Missouri’s legalization of sports betting earlier this year is expected to shrink the inflow of cross-border wagers into Kansas. In 2024, nearly 37 percent of geolocation checks came from Missouri residents attempting to bet in Kansas.

Supporters of reform say Kansas could increase its rate to 15 or 20 percent, with the additional revenue earmarked for schools, infrastructure, and healthcare. Opponents caution that higher taxes might push bettors toward unregulated markets, making oversight more difficult.

Currently, six companies, BetMGM, Caesars, DraftKings, ESPN BET, Fanatics, and FanDuel, operate in Kansas under contracts with the Kansas Lottery. These five-year agreements expire in August 2027. A measure passed earlier this year prevents the Lottery from negotiating renewals until mid-2026, giving lawmakers time to reconsider the entire system.